The Political Conditions

Written by Dr. Madsen Pirie | Saturday, January 1st, 2000

Before Britain joins the Euro the five economic tests must be passed. Chancellor Gordon Brown declared in June 2003 that four of the five tests had been failed. He was satisfied that British entry would not damage financial services in Britain, but was not happy about employment or investment. Nor was there sufficient convergence or flexibility.

The supposition throughout was that this was about economics. In fact many, if not most, of those who support entry do so for political reasons. While they advance arguments that this will be good for the British economy, they support entry because they maintain it will make the UK more influential in Europe, and more tied in with the development of a united Europe. Similarly, many opposing entry cite economic arguments but are opposed to the political implications of UK membership.

If entry is to be, at least in part, a political decision, the possible political barriers to membership might bear examination, just as the economic ones did. It could be argued that there are five political tests in addition to the economic ones.

1. There must be no transfer of power from elected representatives to unelected officials.

The great fear in Britain is that some of our European partners seem happy to have civil servants make decisions which they would prefer to see controlled by electorates. From the European Commission downward, bodies can make binding decisions which cannot be reversed by electors, nor can their members be dismissed by electors. This lies at the heart of the democratic deficit of which Europe stands accused. Only if the UK were satisfied that there would be no such transfer would his test be passed.

2. Britain must retain the ability to set its own rates of taxation.

Since the tax cuts of the 1980s, Britain has had lower rates than most of its EU partners. They, on average, have to work an additional nine days to pay off their annual burden. For some it is much more. The British fear that if Europe raised their taxes to the rates which prevail in the EU, it would have the same harmful effect on wealth and job creation which those high rates have had in Europe. A guarantee that Britain could continue to set its own taxes would be needed to pass this test.

3. Joining the Euro must not prejudice Britain’s ability to determine the social conditions of employment, including payments and benefits, and to determine its own welfare policy.

Britain has a more dynamic economy, roughly midway between those of the US on one side, and the other EU members on the other. We have a more flexible labour market, and can respond more rapidly to economic opportunities. Our social labour costs are lower than those of our partners. We try to keep our welfare at a level which does not burden enterprise and industry with excessive taxes. The UK must be assured that European social and welfare policies will not be imposed on this country.

4. There must be guarantees that British taxpayers will not be required to pay for the unfunded pensions which some EU countries have promised their citizens.

Britain has opted overwhelmingly for funded pensions. Most of the income of our future pensioners will come from funds which have been saved up and invested for the purpose. Many of our EU partners have opted for pay-as-you-go pensions, in which present taxpayers pay the pensions of present recipients. In place of funds are promises drawn on future taxpayers. Britain’s pension fund is larger than that of all our EU partners combined. If Britain joins the Euro, there must be guarantees that the British people, having saved for their own pensions, will not also have to pay for those of their European partners who did not.

5. Britain must be assured that joining the Euro will not lead to taxes which are paid by British taxpayers direct to European institutions.

If EU bodies acquire the right to impose taxes directly upon the peoples of Europe, then both the peoples and their national governments will lose control over the activities of those bodies. We pay our taxes to elected bodies and can, by our vote, influence to some degree the level of those taxes and the wisdom with which they are spent. This important plank of our democracy would disappear if the EU were able to impose taxes directly upon us. The possibility must be specifically excluded if this test is to be passed.

Taken together, the five political tests do indeed constitute further barriers to British entry. They could all easily be resolved, however, by guarantees that our entry would not result in the events they seek to preclude. Such guarantees would give the lie to those who claim that these events are part of a creeping plan to impose them by degrees. By specifically precluding them, it would be possible to reassure the British people that they were not being drawn covertly into a European state, or deprived systematically of their traditional democratic rights and their independence.

By adding the five political tests and setting them out openly, it would make it easier for people to accept an economic case for entry. Since this is a political decision, it makes sense to see if it meets our political concerns.

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